To sell or not to sell? Kyrgyzstan mapping the future of major mobile operator

BISHKEK (TCA) — The Government of Kyrgyzstan has decided not to sell the leading mobile operator, Alfa Telecom CJSC (TM MegaCom), experts believe. The Economy Ministry has submitted for public discussion a draft Government program for the privatization of state property for 2018-2020, and has not included the company in it.

According to Kyrgyzstan’s legislation, the Alfa Telecom CJSC is an independent legal entity with a private ownership, with 100% of the state-owned shares.

After numerous unsuccessful attempts to sell the company, the State Property Management Fund of Kyrgyzstan (SPMF) proposed that the company should remain on the Fund’s balance, and the Government agreed.

Earlier this month, SPMF Chairman Renat Tuleberdiev told journalists that the Fund does not intend to sell MegaCom. The company works well, and in terms of profitability it is the second after the Manas International Airport OJSC, he said.

Failed attempts

There were many attempts to sell MegaCom. The initial price of its shares was 19.7 billion soms (about $306 million) in May 2016, but over time it was reduced to 13.5 billion.

In August 2017, after the failed attempts to sell the company through auctions, it was put up for direct bidding. A Russian citizen Elena Nagornaya, who sells African tea and coffee in Russia, was the only buyer. She was ready to pay 14.5 billion soms, including the 7% commission fees and to take responsibility for possible lawsuits of the company.

However, in November the Property Management Fund terminated the deal explaining that “the parties failed to reach mutually acceptable terms of sale.” Nagornaya asked to transfer the company to trust management for three years with subsequent redemption but Kyrgyzstan’s law does not allow this.

After that, other potential buyers were from Russia, South Korea and Switzerland, but the SPMF canceled all sales procedures because the new privatization program for 2018-2020 was not approved, and the previous program expired.

Given the mistakes of previous years, the Government did not take into account the proceeds from the sale of the company in the national budget revenues for 2018.

In 2016, the Government hoped to complete the construction of the road around Lake Issyk-Kul before the start of the World Nomad Games by selling MegaCom. The company was not sold, and the construction of the road stopped. The Cabinet headed by Temir Sariyev was forced to resign due to the scandal over the reconstruction of the Balykchy-Korumdu road.

Opinions

There were very different points of view about MegaCom’s future. If the company is economically profitable for the State, then it is not necessary to sell it, said Prime Minister Abylgaziyev in May. A new assessment should be carried out, he added.

Many experts said that it was necessary to sell MegaCom to create equal conditions for competition.

If an enterprise is run by the state, its management system becomes very cumbersome, they said. The telecommunication company should develop, introduce modern technologies, and offer high-quality communication services to subscribers. But due to bureaucratic delays, the state-owned company does not keep pace with the progress, experts believe.

Besides, the Law "On public procurement” hindered the development of state owned companies, including Alfa Telecom, which has to fulfill the requirements of the law that was not customized to entities operating in a competitive environment. According to the law, the company had to publish all information about its planned procurement, and it could be used by competitors to their advantage. At the same time, this requirement did not apply to private companies.

Some MPs proposed to transfer the company to trust management. As a result there would be a reduction in personnel, and profits could increase, they said.

After the failed auction in December 2016, the then SPMF head, Malis Mambetjanov, was forced to leave his post. The authorities accused him for the inability to sell the state-owned stake in Alfa Telecom. The next SPMF Chairman Bolsunbek Kazakov was fired in November 2017 after he did not keep promises to sell the company.

However, it was quite predictable regardless of who headed the agency. The State has shifted too many risks to the company’s future buyer, including the risks on six lawsuits and three criminal cases involving the company.

Background

Alfa Telecom CJSC was established in 2009 by Alexey Eliseyev, a close associate of Maxim Bakiyev, the then President Kurmanbek Bakiyev’s son. Assets of BiMoCom LTD, former owner of MegaCom trade mark, were transferred to Alfa Telecom. After the ouster of President Bakiyev in 2010, 49% of Alfa Telecom shares were nationalized by a decree of the interim government, and the remaining 51% remained belonging to two offshore companies.

In December 2013, the Bishkek Inter-district Court declared the purchase and sale of shares invalid, and 51% of shares were returned to Eliseyev. Later, the Osh City Court convicted Eliseyev and confiscated his property, including the stake in the company. In July 2014, the Supreme Court handed over 51% of Alfa Telecom shares to the State. Thus, the Government became the full owner of the company.

MegaCom is now the leader in the coverage of the 2G/3G/4G network in Kyrgyzstan. The company covers 99% of Kyrgyzstan and serves more than 3 million subscribers.The company tops the list of the largest taxpayers in the telecommunications sector and is among the largest employers in Kyrgyzstan.

New CEO

On October 24, Prime Minister Mukhammedkaly Abylgaziyev appointed now former Parliament Deputy from the Respublika – Ata-Jurt parliamentary faction, Akylbek Jamangulov, as Director General of the Alfa Telecom CJSC.

It was a curious coincidence that Jamangulov had a birthday on this day. He turned 30 years old. And the very next day, he took up his duties.

“We want to make MegaCom number one among mobile operators in Kyrgyzstan and remain the largest taxpayer,” he told Vesti.kg news agency. He also spoke about plans to develop new products and offer new services for subscribers. There will be changes in tariffs, he added.

Early starting his career, Jamangulov worked in various companies. He was a Board Member of the Manas International Airport OJSC, headed Gold King Plus LLC, worked as Executive Director of the Kemin Cement Plant ZETH Cement.

In October 2015, he was elected a Parliament Deputy and was a member of the Parliamentary Committee on International Affairs, Defense and Security until October 26, 2018, when the Central Commission for Elections and Referenda prematurely terminated his MP power. According to the country’s legislation, a Parliament Deputy may not hold position in state or municipal service.